Bond managers cut duration ahead of predicted 'flight to quality' reversal

Fixed income managers are cutting back on duration after the risk-off environment seen at the start of 2014 pushed up government bond prices once again.

Yields on government bonds – which move inversely to prices – had climbed steadily since the Federal Reserve’s announcement in May it would seek to taper bond purchases, which it began to do in December. Many managers made tactical moves to add duration and government bond holdings when treasury yields hit 3% in late December, attempting to exploit this trade. Since then, an emerging market sell-off has sparked a downward move in government bond yields as investors sought safety. However, a number of bond investors now think the safe haven trade is overdone after this most recent fli...